Corporate Venture Capital and ASU 2016-01: Best Practices for Equity Investments

Accounting Standards Update 2016-01 has generally flown under the radar since it was released almost two years ago. However, this accounting update has the potential to significantly affect financial reporting by public and private companies with minority equity investments – including corporate entities with a portfolio of venture capital investments. This whitepaper provides an overview of the accounting standards changes as they pertain to companies with equity investments and a few best practice considerations for firms with exposure to these changes.

What Do I Need to Know?

  • The new rules apply to equity investments currently reported at cost.
  • Entities will be required to measure these equity investments at fair value at the end of each reporting period, with changes in fair value recognized in net income.
  • Entities can elect a Measurement Alternative, which would instead require a qualitative assessment for impairment and consideration of observable price changes in identical or similar investments.
  • The new rules will be effective for public companies beginning in fiscal 2018 and for private companies beginning in fiscal 2019.
  • Entities should address the need for appropriate valuation policies and procedures to evaluate their equity investment reporting, monitor investments for impairment, identify observable price changes, and measure fair value when necessary.
  • Mercer Capital has the experience and capabilities to help CFOs, financial managers, and corporate VC professionals measure the fair value of their investment portfolios.